Local Government Deficits Could Inhibit Recovery
Rosenbaum, David E., THE JOURNAL RECORD
N.Y. Times News Service
WASHINGTON _ States and mun-
icipalities across the country plan to raise
taxes and cut spending by tens of billions
of dollars in the fiscal year that begins
July 1, and economists fear that the
money this takes out of consumers'
pockets could inhibit recovery from the
Edward M. Gramlich, a professor of
economics at the University of Michigan
who is studying the situation for the
Congressional Budget Office, has con-
cluded that belt-tightening by state and
local governments could send unemploy-
ment up one-half of one percentage point
nationwide and much more in New
York, California and New England,
where fiscal problems are the worst.
"This will make it more difficult to
pull out of a recession this summer,"
By some calculations, the tax&
increases and budget cuts by state and
local governments could total $50 billion
in the next fiscal year. The economic
effect would be the same as that of a
comparable cut in the federal budget
And the political difficulties in&
achieving deficit reductions of this
magnitude could be as great as they were
when President Bush and Congress
struggled for months last year to reduce
the federal deficit by almost $50 billion.
The prevailing, although by no means
unanimous, view among economists is
that the recession that began last July
will bottom out in the late spring or
summer and that the economy will return
to a path of slow growth. The econom-
ists expect that to happen even though
for the first time since World War II, the
federal government is not stimulating the
David D. Hale, chief economist at
Kemper Financial Services in Chicago,
predicted that the steps the states were
taking to eliminate their budget deficits
would result in "quite a significant
economic drag" and would "reinforce
the recession" in many states. Hale, a
native Vermonter, is an adviser to Gov.
Richard A. Snelling of Vermknt and
pays close attention to state budget
Few states have completed their
budgets for the next fiscal year, so the
amount of tax increases and spending
reductions cannot be calculated pre-
cisely. But the National Conference of
State Legislatures, the foremost author-
ity on the subject, estimates that 21
states must deal with a total projected
budget deficit of more than $35 billion in
the next fiscal year.
That figure represents a two-year
deficit for a few states that operate under
Unlike the federal government, states
by law cannot operate in the red. While
some states may disguise part of their
deficits with accounting gimmicks,
almost all the $35 billion will have to be
eliminated by raising taxes or cutting
Ronald K. Snell, fiscal program
director of the Conference of State
Legislatures, expects the states to enact
about $15 billion worth of higher taxes
and to eliminate the rest of the deficits by
Hal Hovey, publisher of an authorita-
tive newsletter called State Budget and
Tax Notes, estimates that more than 60
percent of Americans will be hit with a
state tax increase in this calendar year.
No one has tallied what is happening
at the local level. But cities, counties and
school districts across the country are
having to cut back. Gramlich and Hale
said they would not be surprised if state
and local tax increases and budget cuts
beginning July 1 totaled $50 billion,
about 1 percent of the country's gross
national product. …
Questia, a part of Gale, Cengage Learning. www.questia.com
Article title: Local Government Deficits Could Inhibit Recovery.
Contributors: Rosenbaum, David E. - Author.
Newspaper title: THE JOURNAL RECORD.
Publication date: June 1, 1991.
Page number: Not available.
© 2009 THE JOURNAL RECORD.
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